Reply to: Paid LOAN SETTLEMENT in 2015 and now have to pay a LOAN CHARGE?

[Groundhogdays]

Unprotected or Closed Years as Part of CLS01 Agreement

I have a mail from our friends at HMRC saying that CLSO as was the end of it for me including unprotected years

Hi Bluemonkey71,

I am trying to collect examples of HMRC advice to CLS01 participants that a line was drawn under liability for tax for closed or unprotected years, as part of the carrot to get people to settle. If it can be proved that such was part of the commercial contract with CLS01, then it may provide some protection from the 2019 Loan Charge assumption that closed years are liable to the charge for outstanding loans.

So when I saw your mention of having such a mail from HMRC, I was wondering if you still have a copy that you would be willing to share?

"I have a mail from our friends at HMRC saying that CLSO as was the end of it for me including unprotected years ."


Also, if you know of anyone else, then that might be of help.


Many thanks,


GHD

[Groundhogdays]

Apologies if I was unclear.

We have spoken with a number of HMRC officers at junior and senior level on the question of whether closed years "settled" under CLSO 1 (i.e. up to 2010/11), need to be disclosed as part of the LC 2019 provisions or whether they should not be.

In particular we do not want to reach a position where disclosure is required but no LC 2019 arises, because of the confused legislation you reference, but where an assessment/statement is issued and we have to spent time having it removed.

Despite showing them the legislation, the stance from the senior officers is that unless the closed year was clearly part of the CLSO 1 process and HMRC knew about it and included it in the contract, then the legislation does NOT exempt disclosure or charge.

Junior officers find that this question is not on their script and we get a range of answers from mildly amusing to potentially helpful along the lines of "I'll go and ask".

The analysis of the legislation we have from the senior officers, does not match yours. We continue to question that analysis but fear that we are being played for time in the hope that the charge will bite before we get clarity.

Having senior officers deny the effect of legislation is worrying. However until I'm certain that HMRC policy aligns with the legislation and will be implemented in that way, I will continue to warn taxpayers that they have a risk and that reducing that risk may mean taking HMRC in in Tribunal.

The legislation is unclear and as you say was not intended to be used explicitly for exempting from the charge years "implicitly" settled (although the early consultation and technical papers said that this would be case). It is surely very simple for HMRC to issue a statement or to propose an amendment/addition to law to make it clear?

I suggest however that it is part of HMRC's playbook to allow uncertainty and confusion to be used to force settlement.

I'm trying to give people practical examples, rather than forensic legal analysis that I know HMRC will resist when it suits them. If that creates confusion so be it.

So far, so murky - but I sense HMRC might just be hiding behind a fig leaf on this one, since the assurances of final settlement (not just open years) were definitely being made as the carrot to settle during CLSO1. Otherwise, why would anyone have bothered with it? At that time did they have any notion of a Loan Charge to be applied retrospectively back 20 years. Clearly not, or they wouldn't have worded the CLSO1 contracts in such a way, or implied exclusion of closed years from further liability in the earlier pre-legislation documentation mentioned.

BUT, WHEN THE NUMBERS CAME IN...

Equally obvious that the CLSO1 was intended as a part-phishing expedition in order to get people to come forward and declare the closed years in addition to open years (whether they needed to or not - and they didn't, but many were 'nudged' into doing so). That way, HMRC could get turkeys to unwittingly vote for their future Christmas Loan Charge and provide the data to magic up that 3.2 billion promise to a grateful government in return for rubber-stamped legislation, no questions.

The dropping of any mention of closed years as being out of scope would have been a small, though necessary omission in said legislation. Oops!

[starstruck]

Taxpayer A was in scheme X for 4 years
The 4th year got an enquiry and some years later (at which point years 1-3 became closed) they settled under CLS01 for this year.

Taxpayer B was in scheme X for 3 years
An enquiry was never opened, they never settled under CLS01 - how could they, there wasn't anything to settle anyway.

Loan Charge comes along ...

Taxpayer A is fine, his settlement covers the previous 3 years implicitly. No more to pay.
Taxpayer B has to pay loan charge on 3 years.

How can taxpayers be treated so differently? Is this really the situation?

[Iliketax]

We have spoken with a number of HMRC officers at junior and senior level on the question of whether closed years "settled" under CLSO 1 (i.e. up to 2010/11), need to be disclosed as part of the LC 2019 provisions or whether they should not be.

Disclosure is something completely different to paying tax on the April 2019 loan charge. The legislation I was referring to gets rid of the tax charge (in certain circumstances). It has nothing to do with disclosure. So I guess you are asking HMRC for an extra statutory concession to get rid of a reporting obligation (where there has been an agreement with HMRC) despite the reporting obligation specifically asking for details of agreements with HMRC. Good luck on that one.

[webberg]

Apologies if I was unclear.

We have spoken with a number of HMRC officers at junior and senior level on the question of whether closed years "settled" under CLSO 1 (i.e. up to 2010/11), need to be disclosed as part of the LC 2019 provisions or whether they should not be.

In particular we do not want to reach a position where disclosure is required but no LC 2019 arises, because of the confused legislation you reference, but where an assessment/statement is issued and we have to spent time having it removed.

Despite showing them the legislation, the stance from the senior officers is that unless the closed year was clearly part of the CLSO 1 process and HMRC knew about it and included it in the contract, then the legislation does NOT exempt disclosure or charge.

Junior officers find that this question is not on their script and we get a range of answers from mildly amusing to potentially helpful along the lines of "I'll go and ask".

The analysis of the legislation we have from the senior officers, does not match yours. We continue to question that analysis but fear that we are being played for time in the hope that the charge will bite before we get clarity.

Having senior officers deny the effect of legislation is worrying. However until I'm certain that HMRC policy aligns with the legislation and will be implemented in that way, I will continue to warn taxpayers that they have a risk and that reducing that risk may mean taking HMRC in in Tribunal.

The legislation is unclear and as you say was not intended to be used explicitly for exempting from the charge years "implicitly" settled (although the early consultation and technical papers said that this would be case). It is surely very simple for HMRC to issue a statement or to propose an amendment/addition to law to make it clear?

I suggest however that it is part of HMRC's playbook to allow uncertainty and confusion to be used to force settlement.

I'm trying to give people practical examples, rather than forensic legal analysis that I know HMRC will resist when it suits them. If that creates confusion so be it.

[Iliketax]

How I wish that the HMRC officers we spoke to had discussed this with Iliketax first!

Now I'm confused. In your earlier post you suggested that what HMRC told you had nothing to do with the legislation. But the legislation ties in closely with what you reported them as saying...

In discussions with HMRC we have been advised that their position is as follows.

If you used CLSO 1 and all schemes used in all years to 2010/11 were disclosed or are clearly part of the audit trail leading to settlement, then the loan charge will not apply to those years.

If you used CLSO 1 and some schemes were not mentioned, then they are potentially liable to the charge.

Now you say:

... in the meantime, continue to include pre 2010/11 years that were part of the CLSO 1 operation, even though closed and no tax paid.

That is very different to what you said the first time. What am I missing (other than someone made a mistake which they will just correct when you point them to the person who said the first thing you quoted)?

[webberg]

How I wish that the HMRC officers we spoke to had discussed this with Iliketax first!

Seems that they have not and in the meantime, continue to include pre 2010/11 years that were part of the CLSO 1 operation, even though closed and no tax paid.

I think that most of the front line officers have been told to push their luck in the hope that the clumsy wording is too difficult for most to follow and perhaps will then argue, that the intent of the law is not as described.

This whole exercise is hampered by legislation that is unclear and which can be interpreted in several ways and as most front line HMRC officers have little interest in straying from their checklists and whenever we contact them, little ability to understand the tax situation or consider anything other than their checklists, I predict many taxpayers will pay too much.

I understand that a literal reading of the law might (not definitely will) lead to a conclusion that closed years from CLSO 1 should be excluded from the LC,

but

a) HMRC has no interest in allowing that
b) HMRC officers cannot follow the legislation
c) their checklist approach does not permit deviation
d) the senior officers, deny the effect of the legislation
e) most taxpayers cannot afford the sort of forensic analysis and hours of argument required to make HMRC comply with a poorly written law that is arguably not intended for this purpose.

[Iliketax]

Is ALL (both points) in your copy ?

The legislation doesn't word it in that way. This is something you want to chat with your tax adviser, referring to your agreement with HMRC and with your facts. The legislation is written in a clumsy way as it was designed for a different purpose (i.e. well before the April 2019 loan charge was thought about) and then amended three times after (e.g. to deal with closing of CLSO 1, changes to double tax relief and the April 2019 loan charge). It is far from the easiest to read but for it to apply you do need (i) an agreement to have been made with HMRC under which it was agreed that the pre-DR step was to be treated as giving rise to earnings before then, and (ii) tax to have been paid as a consequence of that agreement. But there is nothing that says that tax paid must equal 40% (or whatever) of the amount that was agreed to give rise to earnings. But without an agreement in relation to the pre-DR loan, it does not stop the April 2019 loan charge.

[jbeer]

That's strange. Just checked and it's in my copy.

Is ALL (both points) in your copy ?

[Iliketax]

Unfortunately, none of this is in the legislation

That's strange. Just checked and it's in my copy.

[webberg]

At the time of the settlement HMRC told me (verbally, unfortunately) that there were not investigating years prior to 2008/09. I assumed this was because of a 7 year limit to open an enquiry, but am not sure. So in my case, it's uncertain. I've been trying to get through to them on the phone for days, without any luck.

It seems to me that you have a prima facie case that you were enticed to enter a contract on the basis that the 7/8 year was included and that if HMRC subsequently deny that, then the contract can be revoked.

It may be that the threat of that alone would be enough to have 7/8 excluded.

get advice.

[MostlyHarmless]

Did HMRC ask you about 07/08?

If so, was it agreed that the year was closed?

Does the agreement mention 07/08?

If the answer to above are all "yes", then I would say good chance of no loan charge.

If the answer to one or more is "no", much less certain.

At the time of the settlement HMRC told me (verbally, unfortunately) that there were not investigating years prior to 2008/09. I assumed this was because of a 7 year limit to open an enquiry, but am not sure. So in my case, it's uncertain. I've been trying to get through to them on the phone for days, without any luck.

[webberg]

I was involved in a single scheme in 2007/08 & 2008/09. The CLSO 1 settlement was for 2008/09. From your HMRC discussions so far, would the loan charge likely apply to 2007/08 in my case?

Did HMRC ask you about 07/08?

If so, was it agreed that the year was closed?

Does the agreement mention 07/08?

If the answer to above are all "yes", then I would say good chance of no loan charge.

If the answer to one or more is "no", much less certain.

[MostlyHarmless]

In discussions with HMRC we have been advised that their position is as follows.

If you used CLSO 1 and all schemes used in all years to 2010/11 were disclosed or are clearly part of the audit trail leading to settlement, then the loan charge will not apply to those years.

If you used CLSO 1 and some schemes were not mentioned, then they are potentially liable to the charge.

Unfortunately, none of this is in the legislation so I'm fully expecting a "I told you - no you didn't" playground spat in due course.

I was involved in a single scheme in 2007/08 & 2008/09. The CLSO 1 settlement was for 2008/09. From your HMRC discussions so far, would the loan charge likely apply to 2007/08 in my case?

[webberg]

In discussions with HMRC we have been advised that their position is as follows.

If you used CLSO 1 and all schemes used in all years to 2010/11 were disclosed or are clearly part of the audit trail leading to settlement, then the loan charge will not apply to those years.

If you used CLSO 1 and some schemes were not mentioned, then they are potentially liable to the charge.

Unfortunately, none of this is in the legislation so I'm fully expecting a "I told you - no you didn't" playground spat in due course.